Isle iffy on numbers; Nortek unfazed by downgrade; Tribune holds steady; Idearc remains active

By Stephanie N. Rotondo

Portland, Ore., Aug. 26 - If Tuesday's session saw subdued trading, then Wednesday's session was in fact a sleeper, according to traders.

"We didn't quite make a billion [in volumes]," a trader said, noting that only about $900 million of distressed and high-yield issues traded, "which is pretty bad."

"It was definitely bank-oriented and very little of anything else," he said. "Tomorrow's going to be a bit of a struggle."

Still, Isle of Capri Casinos Inc. managed to lose some weight after the company posted its first-quarter results. Despite turning a profit, the debt dipped anyway.

Nortek Inc. was meanwhile unfazed by a rating downgrade. In fact, the bonds went upward following the news.

Elsewhere, Tribune Co.'s notes ended the day unchanged. News came out regarding the company's proposed sale of its Chicago ball club, from which Tribune hopes to take in about $740 million in cash.

It is unclear what has been driving Idearc Inc.'s debt of late, but driving it was. The bonds were among the day's more active issues, though they were largely unchanged to maybe a little better.

Isle bonds iffy on numbers

Despite reporting a profit for the first fiscal quarter, Isle of Capri's bonds headed downward in Wednesday trading, according to market sources.

One source placed the 7% notes due 2014 at 87.5 bid, a more than 2-point decline. Yet another quoted the issue at 87.5 bid, 87.75 offered, down just 1.5 points.

For the quarter ending July 26, Isle posted a profit of $900,000, or 3 cents per share, compared with a $3.6 million loss, or 12 cents per share, the year before. However, net revenues dropped 6.3% to $259.9 million.

Isle of Capri's management is attempting to make the best of the current economy and is continuing its cost-cutting efforts, the company said in its earnings release.

"We believe we continue to be well positioned to endure this period of economic uncertainty as we have focused during the past two years on fiscal discipline and creating a value proposition for our customers," remarked James B. Perry, chairman and chief executive officer, in the release. "Our results during the quarter make clear to us that the economy appears to be engaged in a slow, long-term recovery process, and consumers are being more discriminating about their leisure spending... Based upon the company's experience in the fourth quarter last fiscal year, we believe our cost structure will enable us to increase flow-through and achieve solid margin improvement on incremental revenue when we see economic improvement."

One of Isle's cost cutting initiatives include exiting the international market, where it operates casinos in the Bahamas and the United Kingdom.

Nortek unfazed by downgrade

Nortek's bonds managed to shrug off a downgrade from Moody's Investors Service to head for higher ground, traders reported.

At one desk, the 8½% notes due 2014 were seen gaining 4 points to 48 bid, while at another desk, the issue was deemed 3.5 points better at 47 bid, 48 offered.

Another trader quoted the 8½% notes at 48 bid, 50 offered, while the 10% notes due 2013 were seen at 92 bid.

"I'm not seeing a right side on that one," the trader said.

Moody's cut NTK Holdings Inc. - Nortek's parent company - to Caa3 from Caa2. Nortek's 10% notes got dropped to Caa1 from B3 and the 8½% notes were downgraded to Ca from Caa3.

Moody's attributed its action to a $250 million goodwill impairment charge taken in the second quarter.

On Monday, Nortek reported a net loss of $215.7 million for the quarter ending July 4. That compared with a profit of $46.9 million the year before.

Revenue declined 25% to $487.8 million.

Nortek continues to engage in talks with bondholders regarding a financing plan aimed at keeping the company out of bankruptcy. The manufacturer of building products has about $115.2 million in debt obligations this year, with another $308.9 million coming in 2010.

"NTK Holdings continues to work with its advisors in evaluating its capital structure with the objective of reducing its total debt and improving NTK Holdings' balance sheet and has had preliminary discussions with an informal committee comprised of certain holders of NTK Holdings and Nortek debt," said Richard L. Bready, chairman and CEO, in the earnings release.

Tribune steady on Cubs news

Newspaper publisher Tribune saw its debt holding steady as news came out regarding the company's sale of the Chicago Cubs franchise to the Ricketts family.

One source called both the 4 7/8% notes due 2010 and the 5¼% notes due 2015 unchanged at 9 bid, 10 offered and 7 bid, 8 offered, respectively.

Another source placed the 4 7/8% notes at 7½ bid.

"Looks like that has been the range for a few days now," he said.

News reports indicated that Tribune might briefly bring the ball club into its Chapter 11 case in an effort to wash away any debt associated with the team and its properties. However, the Ricketts family must first sign a definitive agreement on the proposed $845 million sale.

And, it has been learned that the sale will be financed, in part, through the issuance of debt. Sources said that $700 million of debt would be issued, including $250 million in subordinated notes.

Major League Baseball is expected to vote on the sale in November.

Idearc remains active

Idearc's bonds traded in decent size during the mid-week session, but it was unclear what was causing the commotion.

A trader said "$20-odd million" of the 8% notes due 2016 traded at 7½ bid, 8 offered, "right where it has been."

"I am not really sure what got people excited about that," he noted.

But Idearc has seen some action of late, though there has been no news on the bankrupt phonebook publisher.

On Wednesday, Idearc was scheduled to ask the bankruptcy court overseeing its case for permission to send its reorganization plan to creditors for a vote. The plan will eliminate about $6 billion of debt from the company's $9.5 billion pile of debt and will give bank lenders 95% of the new equity in the company. Bondholders have objected to the plan, calling it "skewed" toward said lenders.

Michaels' loan goes wider

Michaels Stores Inc.'s term loan B saw its bid side move lower and its offer side move higher on Wednesday in light volume, according to a trader.

The term loan B was quoted by the trader at 88 bid, 90 offered, compared with Tuesday's levels of 88¾ bid, 89¾ offered and Monday's levels of 87¾ bid, 88¼ offered. A different trader, however, had the paper quoted on Tuesday at 88¼ bid, 89¼ offered, versus an 89 bid on Monday.

On Tuesday, the company released second quarter results that showed an increase in net income, net sales and adjusted EBITDA.

For the quarter, the company had net income of $2 million, compared with a $30 million loss for the same period last year, net sales for the quarter were $807 million, a 1.4% increase over the prior year's net sales of $796 million, and, adjusted EBITDA for the quarter increased 16.4% to $85 million from $73 million in the second quarter of 2008.

As of Aug. 1, the company's cash balance was $36 million. Second-quarter debt levels declined $70 million to $3.964 billion compared with $4.034 billion as of the end last year's second quarter, availability under the revolver was $526 million and, a $5.9 million amortization payment was made on the term loan.

Michaels Stores is an Irving, Texas-based specialty retailer of arts, crafts, framing, floral, wall décor and seasonal merchandise for the hobbyist and do-it-yourself home decorator.

Smurfit notes gain ground

A trader said that Smurfit-Stone Container Corp.'s bonds, some of them issued under the old Jefferson Smurfit Corp. name, "were probably the best high-yield gainers of the day."

He saw its 8¼% notes due 2012 move up to 62 bid from 56.5, on $5 million traded, while its 8 3/8% notes, also due 2012, ended at 61.5, up from 57.25 bid, on $4 million of turnover. Its 7½% notes due 2013 also ended at 61.5, up from 58, with $5 million changing hands. Its 8% notes due 2017 likewise moved up to 61.5 from 57.5, on volume of $8 million.

The company's 7 3/8% notes due 2014 issued by its Stone Container Finance Co. of Canada II gained 1.5 points to end at 77.5 bid, with $2 million traded.

Several traders noted the latest news about the Chicago-based packaging concern, currently reorganizing under Chapter 11; the company asked for a second extension of the exclusive right to propose a reorganization plan, even though discussions with creditors on a plan haven't yet begun. If the U.S. Bankruptcy court in Wilmington, Del., which is overseeing the restructuring, agrees at a Sept. 9 hearing, the new plan deadline would be Jan. 21.

Court papers say the company has scheduled a meeting on Sept. 14 to begin plan discussions with "key constituencies."

Meanwhile, a large preferred shareholder - Caspian Capital Advisors, investment manager for holders of 14% of the preferred stock - wants the judge to appoint an official committee to represent equity holders. That idea will be taken up at another hearing, on Sept. 30.

Caspian said in its filing that the company - which filed for protection in January - is "likely solvent" and "far from hopelessly insolvent." When Smurfit-Stone filed, it listed assets of $7.45 billion against debt totaling $5.58 billion as of last Sept. 30, including five issues of unsecured junk bonds totaling $2.275 billion, and - ahead of the bonds in the capital structure - $1.2 billion under secured revolving credit and term loan agreements.

In its latest filing, Smurfit-Stone described a $584 million cash position as of June 30 and said that it had not drawn from its revolving credit line.

A trader said he did not know what was driving the bonds up, whether it was the request for the exclusivity extension and its likely grant. At his shop, he said, they just "traded with the flow."

Sara Rosenberg and Paul Deckelman contributed to this article.

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